Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2012

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FROM THE TRANSITION PERIOD FROM                    TO                    

COMMISSION FILE NUMBER 1-7521

 

 

FRIEDMAN INDUSTRIES, INCORPORATED

(Exact name of registrant as specified in its charter)

 

 

 

TEXAS   74-1504405

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer Identification

Number)

19747 HWY 59 N, SUITE 200, HUMBLE, TEXAS 77338

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code (713) 672-9433

Former name, former address and former fiscal year, if changed since last report

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.      Yes   x     No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     

Yes   x     No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). (Check one):    

Yes   ¨     No   x

At June 30, 2012, the number of shares outstanding of the issuer’s only class of stock was 6,799,444 shares of Common Stock.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

Part I — FINANCIAL INFORMATION

     3   

Item 1. Financial Statements

     3   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     7   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     9   

Item 4. Controls and Procedures

     9   

Part II — OTHER INFORMATION

     9   

Item 6. Exhibits

     9   

SIGNATURES

     10   

EXHIBIT INDEX

     11   

EX-31.1

  

EX-31.2

  

EX-32.1

  

EX-32.2

  

 

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Table of Contents

Part I — FINANCIAL INFORMATION

Item 1. Financial Statements

FRIEDMAN INDUSTRIES, INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS — UNAUDITED

 

     JUNE 30, 2012     MARCH 31, 2012  

ASSETS

    

CURRENT ASSETS:

    

Cash

   $ 13,856,998      $ 11,881,548   

Accounts receivable, net of allowances for bad debts and cash discounts of $37,276 at June 30 and March 31, 2012

     11,639,338        16,284,377   

Inventories

     34,840,175        36,753,680   

Other

     8,893        88,286   
  

 

 

   

 

 

 

TOTAL CURRENT ASSETS

     60,345,404        65,007,891   

PROPERTY, PLANT AND EQUIPMENT:

    

Land

     1,082,331        1,082,331   

Buildings and yard improvements

     7,014,180        7,014,180   

Machinery and equipment

     29,884,679        29,839,104   

Less accumulated depreciation

     (25,771,788     (25,324,113
  

 

 

   

 

 

 
     12,209,402        12,611,502   

OTHER ASSETS:

    

Cash value of officers’ life insurance and other assets

     966,500        951,000   
  

 

 

   

 

 

 

TOTAL ASSETS

   $ 73,521,306      $ 78,570,393   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

CURRENT LIABILITIES:

    

Accounts payable and accrued expenses

   $ 4,933,881      $ 12,091,154   

Income taxes payable

     940,935        98,464   

Dividends payable

     883,928        883,928   

Contribution to profit sharing plan

     105,000        52,500   

Employee compensation and related expenses

     737,930        727,342   
  

 

 

   

 

 

 

TOTAL CURRENT LIABILITIES

     7,601,674        13,853,388   

DEFERRED INCOME TAXES

     418,346        445,999   

POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

     876,092        853,738   

STOCKHOLDERS’ EQUITY:

    

Common stock, par value $1:

    

Authorized shares — 10,000,000

    

Issued shares — 7,975,160 at June 30 and March 31, 2012

     7,975,160        7,975,160   

Additional paid-in capital

     29,003,674        29,003,674   

Treasury stock at cost (1,175,716 shares at June 30 and March 31, 2012)

     (5,475,964     (5,475,964

Retained earnings

     33,122,324        31,914,398   
  

 

 

   

 

 

 

TOTAL STOCKHOLDERS’ EQUITY

     64,625,194        63,417,268   
  

 

 

   

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

   $ 73,521,306      $ 78,570,393   
  

 

 

   

 

 

 

 

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Table of Contents

FRIEDMAN INDUSTRIES, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS — UNAUDITED

 

     THREE MONTHS ENDED JUNE 30,  
     2012     2011  

Net Sales

   $ 39,434,770      $ 38,935,456   

Costs and expenses

    

Costs of goods sold

     34,787,012        34,778,631   

General, selling and administrative costs

     1,559,836        1,419,819   
  

 

 

   

 

 

 
     36,346,848        36,198,450   

Interest and other income

     (12,208     (17,872
  

 

 

   

 

 

 

Earnings before income taxes

     3,100,130        2,754,878   

Income tax provision (benefit):

    

Current

     1,035,928        946,142   

Deferred

     (27,652     (22,675
  

 

 

   

 

 

 
     1,008,276        923,467   
  

 

 

   

 

 

 

Net earnings

   $ 2,091,854      $ 1,831,411   
  

 

 

   

 

 

 

Average number of common shares outstanding:

    

Basic

     6,799,444        6,799,444   

Diluted

     6,799,444        6,799,444   

Net earnings per share:

    

Basic

   $ 0.31      $ 0.27   

Diluted

   $ 0.31      $ 0.27   

Cash dividends declared per common share

   $ 0.13      $ 0.13   

 

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FRIEDMAN INDUSTRIES, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED

 

     THREE MONTHS ENDED JUNE 30,  
     2012     2011  

OPERATING ACTIVITIES

    

Net earnings

   $ 2,091,854      $ 1,831,411   

Adjustments to reconcile net earnings to cash provided by (used in) operating activities:

    

Depreciation

     450,297        458,099   

Provision for deferred taxes

     (27,652     (22,675

Change in postretirement benefits

     22,354        19,049   

Decrease (increase) in operating assets:

    

Accounts receivable

     4,645,039        1,224,754   

Inventories

     1,913,505        5,063,837   

Other current assets

     79,393        (87,985

Increase (decrease) in operating liabilities:

    

Accounts payable and accrued expenses

     (7,157,273     1,993,091   

Contribution to profit sharing plan

     52,500        50,100   

Employee compensation and related expenses

     10,588        (278,833

Income taxes payable

     842,471        470,482   
  

 

 

   

 

 

 

NET CASH PROVIDED BY OPERATING ACTIVITIES

     2,923,076        10,721,330   

INVESTING ACTIVITIES

    

Purchase of property, plant and equipment

     (90,573     (163,970

Proceeds from sales of assets

     42,375        —     

Increase in cash surrender value of officers’ life insurance

     (15,500     (15,250
  

 

 

   

 

 

 

NET CASH USED IN INVESTING ACTIVITIES

     (63,698     (179,220

FINANCING ACTIVITIES

    

Cash dividends paid

     (883,928     (747,939
  

 

 

   

 

 

 

NET CASH USED IN FINANCING ACTIVITIES

     (883,928     (747,939
  

 

 

   

 

 

 

INCREASE IN CASH

     1,975,450        9,794,171   

Cash at beginning of period

     11,881,548        7,210,290   
  

 

 

   

 

 

 

CASH AT END OF PERIOD

   $ 13,856,998      $ 17,004,461   
  

 

 

   

 

 

 

 

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FRIEDMAN INDUSTRIES, INCORPORATED

CONDENSED NOTES TO QUARTERLY REPORT — UNAUDITED

NOTE A — BASIS OF PRESENTATION

The accompanying unaudited, condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, refer to the consolidated financial statements and footnotes included in the Company’s annual report on Form 10-K for the year ended March 31, 2012.

NOTE B — INVENTORIES

Inventories consist of prime coil, non-standard coil and tubular materials. Prime coil inventory consists primarily of raw materials, non-standard coil inventory consists primarily of finished goods, and tubular inventory consists of both raw materials and finished goods. Inventories are valued at the lower of cost or replacement market. Cost for prime coil inventory is determined under the last-in, first-out (“LIFO”) method. Cost for non-standard coil inventory is determined using the specific identification method. Cost for tubular inventory is determined using the weighted average method.

During the quarters ended June 30, 2012 and 2011, LIFO inventories were liquidated. At June 30, 2012, a deferred debit of $95,309 was recorded to reflect the difference in replacement cost and LIFO cost. LIFO inventories at June 30, 2011 were replaced by March 31, 2012. A deferred credit of $82,653 was recorded at June 30, 2011 to reflect the difference between replacement cost and LIFO cost.

A summary of inventory values by product group follows:

 

     June 30,
2012
     March 31,
2012
 

Prime Coil Inventory

   $ 6,839,110       $ 8,562,607   

Non-Standard Coil Inventory

     2,641,671         1,853,445   

Tubular Raw Material

     3,363,025         6,859,871   

Tubular Finished Goods

     21,996,369         19,477,757   
  

 

 

    

 

 

 
   $ 34,840,175       $ 36,753,680   
  

 

 

    

 

 

 

NOTE C — SEGMENT INFORMATION (in thousands)

 

     THREE MONTHS ENDED
JUNE 30,
 
     2012     2011  

Net sales

    

Coil

   $ 16,830      $ 15,430   

Tubular

     22,605        23,505   
  

 

 

   

 

 

 

Total net sales

   $ 39,435      $ 38,935   
  

 

 

   

 

 

 

Operating profit (loss)

    

Coil

   $ 354      $ (329

Tubular

     3,686        3,916   
  

 

 

   

 

 

 

Total operating profit

     4,040        3,587   

Corporate expenses

     952        850   

Interest & other income

     (12     (18
  

 

 

   

 

 

 

Earnings before income taxes

   $ 3,100      $ 2,755   
  

 

 

   

 

 

 

 

     June 30,
2012
     March 31,
2012
 

Segment assets

     

Coil

   $ 23,281       $ 26,260   

Tubular

     35,386         39,446   
  

 

 

    

 

 

 
     58,667         65,706   

Corporate assets

     14,854         12,864   
  

 

 

    

 

 

 
   $ 73,521       $ 78,570   
  

 

 

    

 

 

 

 

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Corporate expenses reflect general and administrative expenses not directly associated with segment operations and consist primarily of corporate executive and accounting salaries, professional fees and services, bad debts, profit sharing expense, corporate insurance expenses and office supplies. Corporate assets consist primarily of cash and the cash value of officers’ life insurance.

NOTE D — SUPPLEMENTAL CASH FLOW INFORMATION

The Company paid income taxes of approximately $214,000 and $398,000 in the quarters ended June 30, 2012 and 2011, respectively. No interest was paid in the quarters ended June 30, 2012 and 2011, respectively. Noncash financing activities consisted of accrued dividends of $883,928 in both of the quarters ended June 30, 2012 and 2011.

NOTE E — SUBSEQUENT EVENTS

The Company evaluated subsequent events through the filing date of its Form 10-Q for the quarter ended June 30, 2012. The Company is not aware of any subsequent events that would require recognition or disclosure in the consolidated condensed financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Three Months Ended June 30, 2012 Compared to Three Months Ended June 30, 2011

During the three months ended June 30, 2012, sales, costs of goods sold and gross profit increased $499,314, $8,381 and $490,933, respectively, from the comparable amounts recorded during the three months ended June 30, 2011. The increase in sales resulted from an increase in tons sold offset by a decrease in the average selling price. Tons sold increased from approximately 46,000 tons in the 2011 quarter to approximately 50,000 tons in the 2012 quarter. The average per ton selling price decreased from approximately $854 per ton in the 2011 quarter to $789 per ton in the 2012 quarter. In the 2012 quarter, gross profit primarily benefited from improved margins associated with the coil product segment. In the 2011 quarter, the Company experienced an increase in material cost and was unable to pass all of this increase along to its customers. Gross profit as a percentage of sales increased from approximately 10.7% in the 2011 quarter to approximately 11.8% in the 2012 quarter.

Coil product segment sales increased approximately $1,400,000 during the 2012 quarter. This increase was related primarily to an increase in tons sold, which increased from approximately 17,000 in the 2011 quarter to 22,000 in the 2012 quarter. The average per ton selling price of coil products decreased from approximately $897 per ton in the 2011 quarter to $772 per ton in the 2012 quarter. Coil segment operations reflected an operating profit of approximately $354,000 in the 2012 quarter and an operating loss of approximately $329,000 in the 2011 quarter. In the 2011 quarter, the Company experienced an increase in material cost and was unable to pass all of this increase to its customers. Coil operations were adversely impacted in both the 2012 and 2011 quarters by soft demand. Management believes that market conditions for coil products will not improve until the U.S. economy improves and generates a significant improvement in the demand for durable goods.

In August 2008, the Company began operating its coil facility in Decatur, Alabama. This facility produced operating losses of approximately $309,000 and $245,000 in the 2012 and 2011 quarters, respectively. The Company expects that this facility will continue to produce losses until demand for coil products improves.

The Company is primarily dependent on Nucor Steel Company (“NSC”) for its supply of coil inventory. In the 2012 quarter, NSC continued to supply the Company with steel coils in amounts that were adequate for the Company’s purposes. The Company does not currently anticipate any significant change in such supply from NSC. Loss of NSC as a supplier could have a material adverse effect on the Company’s business.

Tubular product segment sales decreased approximately $900,000 during the 2012 quarter. This decrease resulted primarily from a decrease in the average per ton selling price. The average per ton selling price decreased from approximately $828 per ton in the 2011 quarter to approximately $802 per ton in the 2012 quarter. In both the 2012 and 2011 quarters, the tubular segment sold approximately 28,000 tons of tubular products. Tubular product segment operating profits as a percentage of segment sales were approximately 16.3% and 16.7% in the 2012 and 2011 quarters, respectively.

 

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U. S. Steel Tubular Products, Inc. (“USS”) is the Company’s primary supplier of tubular products and coil material used in pipe manufacturing and is a major customer of finished tubular products. Certain finished tubular products used in the energy business are manufactured by the Company and sold to USS. Loss of USS as a supplier or customer could have a material adverse effect on the Company’s business. The Company can make no assurances as to orders from USS or the amounts of pipe and coil material that will be available from USS in the future.

During the 2012 quarter, general, selling and administrative costs increased $140,017 from the amount recorded during the 2011 quarter. This increase was related primarily to an increase in bonuses and commissions associated with increased earnings and volume.

Income taxes in the 2012 quarter increased $84,809 from the amount recorded in the 2011 quarter. This increase was related primarily to the increase in earnings before taxes in the 2012 quarter. The effective tax rate was 32.5% and 33.5% in the 2012 and 2011 quarters, respectively.

FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES

The Company remained in a strong, liquid position at June 30, 2012. The current ratios were 7.9 at June 30, 2012 and 4.7 at March 31, 2012. Working capital was $52,743,730 at June 30, 2012, and $51,154,503 at March 31, 2012.

During the quarter ended June 30, 2012, the Company maintained assets and liabilities at levels it believed were commensurate with operations. Changes in balance sheet amounts occurred in the ordinary course of business. Cash decreased primarily as a result of a decrease in accounts payable. The Company expects to continue to monitor, evaluate and manage balance sheet components depending on changes in market conditions and the Company’s operations.

The Company has in the past and may in the future borrow funds on a term basis to build or improve facilities. The Company currently has no plans to borrow any significant amount of funds on a term basis.

Notwithstanding the current market conditions, the Company believes its cash flows from operations and borrowing capability due to its strong balance sheet are adequate to fund its expected cash requirements for the next twenty-four months.

CRITICAL ACCOUNTING POLICIES

The preparation of consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. One such accounting policy that requires significant estimates and judgments is the valuation of LIFO inventories in the Company’s quarterly reporting. The quarterly valuation of inventory requires estimates of the year end quantities, which is inherently difficult. Historically, these estimates have been materially correct. In the quarter ended June 30, 2012, LIFO inventories were reduced and are expected to be replaced by March 31, 2013. In the quarter ended June 30, 2011, LIFO inventories were reduced and were replaced by March 31, 2012. A deferred debit of $95,309 and a deferred credit of $82,653 were recorded at June 30, 2012 and June 30, 2011, respectively, to reflect the difference between replacement cost and LIFO cost.

FORWARD-LOOKING STATEMENTS

From time to time, the Company may make certain statements that contain forward-looking information (as defined in the Private Securities Litigation Reform Act of 1996, as amended) and that involve risk and uncertainty. These forward-looking statements may include, but are not limited to, future results of operations, future production capacity, product quality and proposed expansion plans. Forward-looking statements may be made by management orally or in writing including, but not limited to, this Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections of the Company’s filings with the U.S. Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Actual results and trends in the future may differ materially depending on a variety of factors including, but not limited to, changes in the demand for and prices of the Company’s products, changes in the demand for steel and steel products in general and the Company’s success in executing its internal operating plans, including any proposed expansion plans.

 

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not Required

Item 4. Controls and Procedures

The Company’s management, with the participation of the Company’s principal executive officer (“CEO”) and principal financial officer (“CFO”), evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of the end of the fiscal quarter ended June 30, 2012. Based on this evaluation, the CEO and CFO have concluded that the Company’s disclosure controls and procedures were effective as of the end of the fiscal quarter ended June 30, 2012 to ensure that information that is required to be disclosed by the Company in the reports it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

There were no changes in the Company’s internal control over financial reporting that occurred during the fiscal quarter ended June 30, 2012 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

FRIEDMAN INDUSTRIES, INCORPORATED

Three Months Ended June 30, 2012

Part II — OTHER INFORMATION

Item 6. Exhibits

 

Exhibits        
31.1     Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed by William E. Crow
31.2     Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed by Ben Harper
32.1     Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by William E. Crow
32.2     Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Ben Harper
101.INS     XBRL Instance Document.
101.SCH     XBRL Taxonomy Schema Document.
101.CAL     XBRL Calculation Linkbase Document.
101.LAB     XBRL Label Linkbase Document.
101.PRE     XBRL Presentation Linkbase Document.

 

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Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    FRIEDMAN INDUSTRIES, INCORPORATED
Date August 13, 2012     By    /s/ BEN HARPER
     

Ben Harper, Senior Vice President-Finance

(Principal Financial and Accounting Officer)

 

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EXHIBIT INDEX

 

Exhibit No.

     

Description

Exhibit 31.1     Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed by William E. Crow
Exhibit 31.2     Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed by Ben Harper
Exhibit 32.1     Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, signed by William E. Crow
Exhibit 32.2     Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, signed by Ben Harper
101.INS     XBRL Instance Document.
101.SCH     XBRL Taxonomy Schema Document.
101.CAL     XBRL Calculation Linkbase Document.
101.LAB     XBRL Label Linkbase Document.
101.PRE     XBRL Presentation Linkbase Document.

 

11